2005-12-15 16:01:00
Embassy Quito
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E.O. 12958: N/A

REF: STATE 186328

Below is the text previously sent via email to USTR in
response to reftel request for Post input for the 2006
National Trade Estimate Report for Ecuador. We were also
informed via email that USTR would revise the first two
sections "Trade Summary" and "Free Trade Negotiations."


The U.S. trade deficit with Ecuador was $2.6 billion in 2004,
double the trade deficit of $1.3 billion in 2003. U.S. goods
exports in 2004 were $1.7 billion, up 15.2 percent from the
previous year. Corresponding U.S. imports from Ecuador were
$4.3 billion, up 57.4 percent, largely due to increased oil
prices. Ecuador is currently the 50th largest export market
for U.S. goods.

The stock of U.S. foreign direct investment (FDI) in Ecuador
in 2003 was $1.4 billion, up from $1.28 billion in 2002.
U.S. FDI in Ecuador is concentrated largely in the natural
resource extraction sector.


In May 2004, the United States initiated free trade agreement
(FTA) negotiations with three Andean nations -- Colombia,
Peru and Ecuador. Bolivia is participating as an observer
and is expected to become part of the agreement at a later
stage. The U.S. Government will seek to address the issues
described in this chapter within the context of these
negotiations. The four Andean countries collectively
represented a market of about $8.5 billion for U.S. exports
in 2004, and were home to about $7.2 billion in U.S. foreign
direct investment.



When Ecuador joined the WTO in January 1996, it bound most of
its tariff rates at 30 percent or less. Ecuador's average
applied MFN tariff rate is 11.9 percent. Ecuador applies a
four-tiered structure with levels of 5 percent for most raw
materials and capital goods, 10 percent or 15 percent for
intermediate goods, and 20 percent for most consumer goods.
A small number of products, including planting seeds,
agricultural chemicals and veterinary products are duty-free.

As a member of the Andean Community (CAN),Ecuador grants and
receives exemptions from tariffs (i.e., reduced ad valorem

tariffs and no application of the Andean Price Band System)
for products from the other CAN countries (Bolivia, Colombia,
Peru and Venezuela). Currently, these countries have an
Andean Free Trade Zone and apply Common External Tariffs
(CET),as stated in CAN Decision 370. There is a proposal
for a new CET with a three-tiered structure, with levels of
5, 10 and 20 percent tariffs. The proposed structure has not
been approved by the CAN and a final decision is expected to
be taken by the end of 2005. The United States is seeking the
elimination of Ecuador,s duties on U.S. exports in the FTA
negotiations, with phased reductions for the most sensitive

Ecuador maintains the Andean Price Band System (APBS) on 153
agricultural products (13 &marker8 and 140 &linked8
products) imported from outside the CAN. The 13 &marker8
products are wheat, rice, sugar, barley, white and yellow
corn, soybean, soybean meal, African palm oil, soy oil,
chicken meat, pork meat and powder milk. Under this system,
the ad valorem CET is adjusted (increased or reduced)
according to the relationship between international reference
prices, established floor and ceiling prices and the
importation price of the commodity. Upon accession to the
WTO, Ecuador bound its ad valorem tariffs (including the
additional levy from the APBS) for these commodities at
between 31.5 and 85.5%.

As part of its WTO accession, Ecuador committed to phase out
its price band system, starting in January 1996, with a total
phase out by December 2001. No steps have been taken to
comply with this commitment. The U.S. Government is seeking
through the FTA negotiation to eliminate Ecuador,s barriers
to trade in agricultural products, while providing reasonable
adjustment periods and safeguards for producers of
import-sensitive agricultural products.

Non-Tariff Measures

Ecuador has failed to eliminate several non-tariff barriers
since its WTO accession. Importers must register with the
Central Bank through approved banking institutions to obtain
an import license. Ecuador requires prior authorization
from various government agencies, e.g., the Ministry of
Agriculture (MAG),for importation of most commodities,
seeds, animals and plants. Also, the Ministry of Health must
give its prior authorization (i.e., sanitary registration)
before processed, canned and packed foods, food ingredients,
beverages, cosmetics and pharmaceutical products may be
imported. Another administrative hurdle agricultural
importers must overcome is the MAG,s use of &Consultative
Committees.8 These committees, mainly composed of local
producers, often advise the MAG against granting import
permits to foreign suppliers. The MAG often requires that
all local production be purchased at high prices before
authorizing imports. If this barrier was removed, it is
estimated that corn and soybean meal exports could increase
by $10-25 million each.

Ecuador also continues to maintain a pre-shipment inspection
(PSI) regime for imports with an f.o.b. value of more than
US$4,000. Pre-shipment inspection by an authorized
inspection company (both before shipment and after specific
export documentation has been completed at the intended
destination) results in delays far exceeding the time saved
in customs clearance. Customs authorities perform random
spot-checks, causing further delays. These practices
generally add between six and eight weeks to shipping times.
While this does increase the landed cost of products, the
impact on exports is likely negligible.

Ecuador maintains bans on the import of used motor vehicles,
tires and clothing, and applies a 27 percent excise tax (ICE)
on imported distilled spirits. As excise taxes on imports
are calculated on CIF value plus import duties, the effective
rate is higher for imports than domestic products. Ecuador
has not equalized the application of excise taxes between
imported and domestic products. Exports lost as a result of
the ban on vehicles and tires are estimated to range between
$100-500 million. Used clothing exports could amount to
$25-100 million, if the import ban was lifted.

In December 1999, the MAG, through the Ecuadorian Animal and
Plant Health Inspection Service (SESA),issued a requirement
that all importers must present a certificate stating that
imported agricultural products (plants, animals, their
products or byproducts) have not been produced using modern
biotechnology. In November 2002, the President issued
Executive Decree 3399 creating the National Commission for
Biosafety as an office of the Ministry of Environment. It is
responsible for biotechnology-related products and
regulations issues. However, no rules have yet been enacted.
If the trade barrier was established according to the law,
the potential loss of exports is estimated to be $25-100


Over the last two years, INEN has imposed unreasonable and
costly certification requirements on imports of
refrigerators, freezers and gas ranges of U.S. origin. These
requirements were not published in advance and have impeded
market access for U.S. manufacturers. None of these
certification requirements were notified to WTO members for
comment as required by the WTO Agreement on Technical
Barriers to Trade. Ecuador submitted its first notification
of changes in certification requirements to the WTO at the
beginning of 2005. Since then, Ecuador has submitted 5
additional notifications. Lost U.S. exports are estimated to
be $10-25 million.

SESA is responsible for administering Ecuador's sanitary and
phytosanitary controls. According to Ecuadorian importers,
bureaucratic procedures required to obtain clearance still
appear to discriminate against foreign products. Ecuador is
bound by the WTO Agreement on the Application of Sanitary and
Phytosanitary (SPS) Measures, yet denials of SPS
certification often appear to lack a scientific basis and to
have been used in a discriminatory fashion to block the
import of U.S. products that compete with Ecuadorian
production. This occurs most often with poultry, turkey and
pork meats, beef, dairy products and fresh fruit. The
ability to import some products, such as rice, corn, soybeans
and soybean meal depends entirely on the discretion of the
MAG, which will often look to the Consultative Committees for
advice. Ecuador has yet to fulfill its notification
obligations under the WTO SPS Agreement. The impact of
removing this barrier would mean an increase of U.S. exports
of up to $10 million.

SESA follows the CAN,s &Andean Sanitary Standards.8 Some
standards applicable for third countries are different from
those applied to CAN members. For example, there can be
differences in the requirements for CAN and third countries
for the importation of live animals, animal products, and
plants and plant by-products. SESA also requires
certifications for each product stating that the product is
safe for human consumption or, in the case of live animals,
that the animal is healthy and that the country of origin or
the area of production is free from certain exotic plant or
animal disease. Industry sources assert that this process
has been used unreasonably by SESA to prevent entry of animal
products -- especially poultry -- that compete with local

Sanitary registrations are required for imported as well as
domestic processed food, cosmetics, pesticides,
pharmaceuticals, and syringes, as well as some other consumer
goods. However, in a side agreement to its WTO Accession
Agreement, Ecuador committed to accept the U.S. Certificate
of Free Sale authorized by the U.S. Food and Drug
Administration, instead of the Government of Ecuador,s
Sanitary Registration. In August 2000, the Government of
Ecuador passed a law (Ley de Promocion Social y Participacion
Ciudadana, Segunda Parte ) also known as Troley II),
followed by regulations issued in June 2001, to reform the
issuance of sanitary permits for food products. This is a
step towards modernizing the issuance of sanitary
registrations with new regulations that allow the acceptance
of free sale certificates, require that the government issue
sanitary permits within 30 days of the receipt of the
request, and reduce the number of documents required to
obtain a permit. However, it does not appear that these
regulations are being applied consistently and export losses
are estimated to be around $5 million. U.S. firms report
that the Izquieta Perez National Hygiene Institute (INHIP -
the Ministry of Health,s executive arm is responsible for
granting the sanitary registration certificate) office in
Guayaquil accepts the U.S. Certificates of Free Sale but
continues to apply the old regime for sanitary permits. In
addition, non-transparent bureaucratic procedures and
inefficiency have delayed issuance beyond 30 days and in some
cases have reportedly blocked the entry of some imported
products from the United States. Agricultural exporters
estimate that the removal of this delay could mean an
increase in U.S. exports of about $5 million.

U.S. companies have expressed concerns regarding regulations
issued by Ecuador,s public health ministry requiring foreign
food manufacturers to disclose confidential information such
as formulas of imported food and pharmaceutical products.
This requirement appears to go beyond the requirements of the
Codex Alimentarius Commission on Internationals Standards and
Labeling. Pharmaceutical and agrichemical industry sources
estimate that lost exports due to this problem amount to
$10-25 million.


Government procurement is regulated by the 2001 public
contracting law. Foreign bidders must be legally represented
in Ecuador. The law does not discriminate against U.S. or
foreign suppliers. Bidding for government contracts can be
cumbersome and insufficiently transparent. This can lead to
multiple cancellations of bid solicitations, unnecessarily
adding to the costs of submitting bids, and opens the process
to possible manipulation by contracting authorities. Ecuador
is not a signatory to the WTO Agreement on Government
Procurement. In the FTA negotiations the U.S. Government is
seeking opportunities for U.S. companies to bid on Ecuadorian
government procurement. If government procurement was opened
to transparent competition by U.S. companies, exports could
increase $10-25 million.

Ecuador has created a semi-independent agency, the
Corporation for the Promotion of Exports and Investments
(Corpei),to promote Ecuadorian exports. Using a European
Union loan, Corpei offers matching grants to exporters to
help fund certain expenses, including international
promotional events and export certifications.


In 1998, Ecuador enacted a comprehensive law that
significantly improved the legal basis for protecting
intellectual property, including patents, trademarks and
copyrights. The intellectual property law provides greater
protection for intellectual property; however, it is
deficient in a number of areas and the law is not being
adequately enforced.

Ecuador's current intellectual property regime is provided
for under its IPR law and Andean Pact Decisions 486, 345 and

351. Ecuador is a member of the World Intellectual Property
Organization (WIPO) and is a member of the WIPO Copyright
Treaty and the WIPO Performances and Phonograms Treaty.
Furthermore, Ecuador has ratified the Berne Convention for
the Protection of Literary and Artistic Works, the Geneva
Phonograms Convention, the Paris Convention for the
Protection of Industrial Property and the WIPO Patent
Cooperation Treaty.

The United States is currently negotiating IPR provisions
under the ongoing Andean FTA negotiations to improve
protection and strengthen enforcement of IPR. The U.S.
Government is seeking to address specific U.S. industry
concerns related to the protection and enforcement of
copyrights and related rights, patents, proprietary data for
pharmaceutical and agricultural products, trademarks and
geographical indications.

The Government of Ecuador, through the National Copyright
Office,s Strategic Plan against Piracy, has committed to
take action to reduce the levels of copyright piracy,
including implementation and enforcement of its 1998
Copyright Law. However enforcement of copyrights remains a
significant problem, especially concerning sound recordings,
computer software and motion pictures. The Government of
Ecuador has taken no action to clarify Article 78 of the 1999
Law on Higher Education, which could be interpreted to permit
software copyright violations by educational institutions.

Patents and Trademarks

Ecuador's 1998 IPR law provided an improved legal basis for
protecting patents, trademarks, and trade secrets. However,
concerns remain regarding several provisions, including a
working requirement for patents, compulsory licensing and the
lack of enforcement in the protection of test data. U.S.
companies also are concerned that the Ecuadorian government
does not provide patent protection to second uses, which
would allow a company with a patented compound for one use to
subsequently patent a second use of that compound.

Government of Ecuador health authorities continue to approve
the commercialization of new drugs that are the
bioequivalents of patented drugs, thereby denying the
originator companies the exclusive use of their data. In
effect, the Government of Ecuador is allowing the test data
of registered drugs from originator companies to be used by
others seeking approval for their own pirate version of the
same product. In the FTA negotiations the U.S. Government is
supporting protection of data exclusivity.


There continues to be an active local trade in pirated audio
and video recordings, computer software and counterfeit brand
name apparel. The International Intellectual Property
Alliance estimates that piracy levels in Ecuador for both
motion pictures and recorded music has reached 95 percent,
with estimated damage due to music piracy of $80 million. At
times, judges in IPR cases, before issuing a preliminary
injunction, demand a guaranty and evidentiary requirements
that exceed legal requirements and in effect limit the
ability of rights holders to enforce their rights. Ecuador
has made no progress in establishing the specialized IPR
courts required by Ecuador,s 1998 IPR law. The national
police and the customs service are responsible for carrying
out IPR enforcement but do not always enforce court orders.
Some local pharmaceutical companies produce or import pirated
drugs and have sought to block compliance with Ecuador,s
Intellectual Property law and improvements in patent
protection. U.S. industry estimates damage due to the
failure to provide data exclusivity is at least $5 million.
The U.S. Government is supporting enforcement of IPR in the
FTA negotiations. Overall in the IPR sector, industry
sources estimate that the impact of removing these barriers
would amount to $100-500 million.


Ecuador has ratified the WTO Agreement on Financial Services.
The 1993 Equity Markets Law and the 1994 General Financial
Institutions Law significantly opened markets in financial
services and provided for national treatment of foreign
suppliers. Foreign professionals are subject to national
licensing requirements. The Superintendent of Banks must
certify accountants.

In the area of basic telecommunications, Ecuador only
subscribed to WTO commitments for domestic cellular services.
It did not make market access or national treatment
commitments for a range of other domestic and international
telecommunications services, such as voice telephony and
data. In addition, Ecuador does not adhere to the
pro-competitive regulatory commitments of the WTO Reference
Paper. Several U.S. telecommunications companies have had
their international circuits disconnected without proper
notice of alleged infractions.

The U.S. Government is seeking through the FTA negotiations
to secure greater access for U.S. providers of cross-border
services to the Ecuadorian market, including in the areas of
financial and telecommunications services.


Ecuador's foreign investment policy is governed largely by
the national implementing legislation for Andean Pact
Decisions 291 and 292 of 1991. Under Ecuadorian law, foreign
investors are accorded the same rights of establishment as
Ecuadorian private investors, may own up to 100 percent of
enterprises in most sectors without prior government
approval, and face the same tax regime. There are no
controls or limits on transfers of profits or capital. The
U.S.-Ecuador Bilateral Investment Treaty (BIT),which entered
into force in May 1997, includes obligations relating to
national and most-favored-nation treatment; prompt, adequate
and effective compensation for expropriation; the freedom to
make investment-related transfers; and access to binding
international arbitration of investment disputes. U.S.
companies are sometimes reluctant to resolve commercial
disputes in the Ecuadorian legal system, fearing a prolonged
process and a lack of impartiality.

In early 2005, Ecuador's Congress modified the Arbitration
and Mediation Law to prohibit international arbitration if
the national interest could be affected. Depending on how it
is interpreted and applied, this modification of Ecuador,s
law could conflict with Ecuador,s standing consent to
binding arbitration under the U.S.-Ecuador BIT. At a
minimum, the new law will create confusion among investors
regarding their arbitration rights and may also reinforce
negative impressions among investors of Ecuador,s commitment
to international arbitration.

Certain sectors of Ecuador's economy are reserved to the
state. All foreign investment in petroleum exploration and
development in Ecuador must be carried out under contract
with the state oil company. U.S. and other foreign oil
companies produce oil in Ecuador under such contracts.
Several of these companies are involved in a dispute with the
government of Ecuador relating to the refund of value-added
taxes. In 2004, one of the disputing U.S. companies won a
$75 million international arbitration award against the
government of Ecuador. The Government has requested a
judicial review of the arbitration award. After notice of
the award, Ecuador,s Solicitor General (Procurador General)
initiated an investigation of the company for allegedly
transferring assets to another foreign company without
obtaining the required authorization from the state. The
Ecuadorian government has since threatened the nullification
of the company,s contract and seizure of the company,s
considerable assets in Ecuador.

Foreign investment in domestic fishing operations, with
exceptions, is limited to 49 percent of equity. Foreign
companies cannot own more than 25 percent equity in broadcast
stations. Foreigners are prohibited from owning land on the
borders or the coast.

Effective compensation for expropriation is provided for in
Ecuadorian law but is often difficult to obtain. The extent
to which foreign and domestic investors receive prompt,
adequate and effective compensation for expropriations varies
widely. It can be difficult to enforce property and
concession rights, particularly in the agriculture, oil and
mining sectors. Foreign oil, energy and telecommunications
companies, among others, have often had difficulties
resolving contract issues with state or local partners. The
transparency and stability of the country,s investment
regime are significantly weakened by the existence of
numerous investment-related laws which overlap or appear to
have mutually inconsistent provisions. This judicial
complexity increases the risks and costs of doing business in

The U.S. Government has worked with the Government of Ecuador
both before and in parallel with the FTA negotiations to
ensure a fair resolution of U.S. investor disputes,
consistent with Ecuadorian law. Since May of 2003, when some
disputes were resolved, not one U.S. investor dispute has
been settled.


Ecuador passed an electronic commerce law in April 2002 that
makes the use of electronic signatures in business
transactions on the Internet legally binding and makes
digital theft a crime. Ecuador has initiated a program for
e-government services and to promote public access to
information technology through funding from international
financial institutions. The U.S. is seeking in the FTA
negotiations to include rules prohibiting duties on and
discrimination against digital products, such as computer
programs, videos, images, and sound recordings, based on
where they are made or the nationality of the firms or
persons making them.